Q3 2013 U.S. Investment Banking Round-Up: Equity Underwriting

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The third quarter was a difficult period for investment banks owing to a marked decline in the demand for advisory, underwriting and trading services across the globe. The hit taken by the equity underwriting market is evidenced by the fact that the total size of global equity deals fell 27% in Q3 compared to the figure for the previous quarter – shrinking to one of its lowest levels since the dismal second half of 2011, when the Eurozone crisis forced companies looking to raise fresh capital to stay away from the equity market.

As can be expected, the slowdown in the industry translated into significant declines in fee revenues for investment banks. Early last month, we attempted to estimate the quarter-on-quarter changes in equity underwriting fees for the country’s five biggest investment banks - Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Bank of America-Merrill Lynch (NYSE:MS) and Citigroup (NYSE:C) – based on equity market data compiled by Thomson Reuters. In that article – titled Equity Issuance Fees Fall Sharply In Q3 Among Major Banks - we concluded that each of these banks pocketed lower equity underwriting fees in Q3. And with the banks detailing their performance for the quarter over the past few weeks, we take a look at how they fared in terms of the actual equity underwriting fees generated for the period.

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of America | Citigroup

The quarterly data from Thomson Reuters estimated a 20% decline in equity underwriting fees for the industry in Q3 compared to Q2 2013. The country’s five biggest investment banks were believed to have fared worse than this industry average, with their total equity underwriting fees estimated to have fallen by 25% for the period. And the reported data confirms this fact.

The table below was compiled based on the banks’ earnings announcements, and shows how much in equity underwriting fees each of the five banks earned for each of the last ten quarters.

($ mil) Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
JPMorgan 455 178 169 276 250 235 265 273 457 333
Bank of America 422 316 268 305 192 279 250 323 356 329
Goldman Sachs 378 90 191 255 239 189 304 390 371 276
Morgan Stanley 419 239 189 172 283 199 237 283 327 236
Citigroup 272 106 90 155 168 143 163 225 266 174

JPMorgan retained its position at the top of the list in terms of the number of equity underwriting deals in the third quarter, with the diversified banking group being the only one globally to participate in 100 deals over the period. Morgan Stanley came in at a rather distant second with a role in 84 deals. JPMorgan also bagged lead roles in some of the largest deals that closed over the period. This is what helped it generate more equity underwriting fee revenues than any of its competitors. However, the $333 million figure for Q3 was 23% lower than what the bank reported in Q2.

JPMorgan also dethroned Goldman Sachs to emerge as the leading equity underwriter this quarter in terms of total value – although Goldman boasts a higher average deal size than any of its any of its competitors, indicating that the bank played a role in most of the largest equity underwriting deals over the quarter. But this did not translate into higher revenues for Goldman, with the investment banking giant reporting a 25% drop in equity underwriting fees quarter-on-quarter. Bank of America’s revenues fell the lowest among the five banks here, shrinking just over 7%, while competitors Morgan Stanley and Citigroup had to contend with revenue declines of 28% and 35% respectively.

As the current macroeconomic uncertainty persists, we expect the fourth quarter to be another lukewarm period for equity underwriters.

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  • commented 12 months ago
  • tags: GS JPM C BAC MS
  • JP Morgan recorded a loss of $380 million in the 3QFY13 which interpreted a loss of $0.17 per share. Whereas EPS has increased to $1.42. I got these facts from: http://goo.gl/UkANwq